North American and Chinese markets both rebound; Starbucks posts positive same-store sales growth for two consecutive quarters. Cost pressures persist, and adjusted EPS is down 19% year-on-year | Earnings Report Insights

On Wednesday night, Starbucks delivered a financial report that excited the market. The world’s largest coffee chain achieved global same-store sales growth of 4% in the first fiscal quarter of 2026, marking the second consecutive quarter of positive growth and beating Wall Street’s most optimistic expectations.

What’s even more noteworthy is that U.S. market foot traffic turned positive for the first time in eight quarters, signaling that CEO Brian Niccol's "Back to Starbucks" transformation strategy is yielding real results.

The key highlights of the financial report are as follows:

First quarter consolidated revenue grew 6% to $9.9 billion, with global same-store sales driven by a 3% increase in transaction volume and a 1% rise in average ticket size.

Despite strong sales growth, adjusted earnings per share were $0.56, down 19% year over year, marking six consecutive quarters of double-digit decline.

High labor investments and rising coffee costs continue to erode profit margins; first-quarter GAAP operating margin contracted by 290 basis points to 9.0%.

When announcing the 2026 financial guidance, the company stated that global same-store sales are expected to grow at least 3%, with a slight improvement in operating margin anticipated.

After the earnings release, Starbucks shares surged 9% in pre-market trading. This performance not only validates the series of reform measures Niccol has implemented since taking office in 2024, but also restores market confidence in this coffee giant, which has over 41,000 stores worldwide.

North American Market Reverses Decline, Transaction Volume Growth as Key Breakthrough

The North American market was the biggest highlight this quarter. Same-store sales in the region grew 4%, with comparable transaction volume up 3%—the first positive growth in eight quarters—indicating Starbucks has successfully reversed a previously persistent decline in traffic. The U.S. market, Starbucks’ most important region, also achieved 4% same-store sales growth.

However, deteriorating profitability remains a concern.

North American revenue grew 3% to $7.3 billion, but operating profit plunged 27% to $867 million, with the operating margin dropping sharply from 16.7% a year earlier to 11.9%, down 480 basis points. This was mainly due to massive labor investment required by the "Back to Starbucks" strategy and inflationary pressures from tariffs and rising coffee prices. According to the report, store operating costs as a percentage of company-operated store revenue rose from 54.3% to 57.0%.

The North American market currently has 18,360 stores, a decrease of 1% year over year. This quarter, there was a net increase of 49 stores, including the closure of 3 stores as part of the restructuring plan.

Strong Performance in International Business, Marked Recovery in China Market

The international market continued its growth momentum, with same-store sales up 5%, outperforming North America. Revenue in this segment soared 10% to $2.06 billion, operating profit grew 19% to $283 million, and the operating margin increased from 12.7% to 13.7%, expanding by 100 basis points.

China’s performance was especially impressive, with same-store sales up 7%, including a 5% increase in transaction volume and a 2% rise in average ticket size. This growth rate is significantly higher than the global average, showing Starbucks’ recovering competitiveness in this crucial market. The number of stores in China reached 8,011, an increase of 4% year over year, accounting for nearly 20% of Starbucks' global total.

It’s worth noting that the improvement in international business profitability partly benefited from changes in accounting treatment. Due to reclassifying assets of the China retail business as assets held for sale, related depreciation and amortization expenses have ceased, lowering store operating and depreciation/amortization costs. However, restructuring costs and higher coffee prices still put pressure on margins.

The international market saw a net increase of 79 stores this quarter, but closed 162 stores as part of restructuring, including 83 in China.

The company announced significant restructuring of its Chinese business this quarter. Last November, Starbucks reached an agreement with BPEA (Boyu Capital) to form a joint venture to operate its China retail business, with Boyu Capital set to acquire up to a 60% stake; Starbucks will retain a 40% share and continue to own and license its brand and intellectual property.

This transaction is expected to close this spring, pending regulatory approval. With related assets and liabilities reclassified as held for sale, Starbucks has ceased depreciation and amortization of related long-term assets, resulting in lower depreciation/amortization and store operating costs, but a significant increase in income tax expense.

By the end of the first fiscal quarter, Starbucks’ balance sheet showed $4.7 billion in assets held for sale and $1.8 billion in related liabilities. This transaction is seen as a key milestone in Starbucks’ ongoing transformation, aiming to accelerate long-term growth in this critical market.

Channel Development Business Grows Rapidly

Channel development posted outstanding results this quarter, with revenue surging 20% to $523 million, mainly supported by growth of the Global Coffee Alliance and increased sales of ready-to-drink products. Operating profit grew 4% to $216 million.

However, the operating margin contracted sharply from 47.7% last year to 41.3%, down 640 basis points. This was primarily due to changes in product mix and rising global product costs. Growing income from the North American Coffee Partnership joint venture helped ease some margin pressure.

Cost Pressures Persist, Profitability Remains Top Challenge

Despite strong sales growth, declining profitability continues to be Starbucks’ core challenge. First-quarter GAAP operating margin contracted 290 basis points to 9.0%, and non-GAAP margin contracted 180 basis points to 10.1%. This was mainly due to two factors:

First is the significant increase in labor investment. To improve service quality and speed, Starbucks made major investments in store staffing. Total store operating costs rose from $4.2 billion to $4.55 billion, up 8.3%, with their share of total revenue rising from 44.7% to 45.9%.

Second is rising raw material costs. Spiking coffee prices and tariffs pushed product and distribution costs from $2.9 billion to $3.3 billion, up 13.1%, with their share of total revenue rising from 30.8% to 33.0%.

There were also tax anomalies. Due to reclassifying the China retail business as held for sale and changing the indefinite reinvestment declaration, the effective tax rate jumped from 23.6% last year to 61.7%. The non-GAAP effective tax rate also climbed from 23.6% to 26.8%.

In the end, GAAP earnings per share were $0.26, plunging 62% year over year; non-GAAP earnings per share were $0.56, down 19% year over year, marking a sixth straight quarter of double-digit decline.

2026 Fiscal Year Outlook: Cautiously Optimistic With Focus on Margin Improvement

Starbucks, under Niccol’s leadership, issued a full-year outlook for the first time, taking a cautiously optimistic stance. The company expects global and U.S. same-store sales to grow at least 3% in fiscal year 2026, with consolidated revenue growing at a similar pace. Non-GAAP operating margin is expected to improve slightly from last year, and non-GAAP earnings per share are projected between $2.15 and $2.40.

Globally, the company plans a net increase of 600 to 650 stores, including company-operated and franchised locations. It’s important to note that this guidance assumes the China retail business will remain operated by the company during the second half of the fiscal year.

Jefferies analyst Andy Barish pointed out before the earnings release that Starbucks needs to sustain strong traffic growth in the latter half of fiscal 2026 to improve profitability and justify the “major” investment costs. Right now, sales momentum is clearly accelerating, but converting that into sustainable profit growth remains the key challenge for management.

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